2006 was a good year for stock market investors, with key indices shattering several psychological barriers. Will 2007 be similar? In this article, The Smart Investor gets four technical analysts to predict what the markets will do this year.

While one of them is a gung-ho bull, the other three advise investors to tread cautiously. In terms of stocks, there seems to be a bias towards mid- and small-caps, and sectors that have not participated in the rally last year.

In my previous article in The Smart Investor dated October 23, 2006, I had mentioned that many investors were experiencing a fear of heights in the current bull run in the Indian stock markets. That same nervousness continues to prevail with the markets scaling new peaks.

This indicates that our markets are nowhere close to any major top. Those who have missed the boat have been expecting a sharp correction since long. But the market is supreme and doesn’t listen to anybody’s wishes. It is time to come out of this wishful thinking and look for new buying opportunities in this strong bull market.

In this article, I am presenting an alternate possible pattern developing in the position of X-wave mentioned in my last article. Earlier I was interpreting the X-wave to be a diametric formation carrying seven legs. The swift price action that was expected in last two months has not materialised and forced me to look for a different interpretation.

The BSE Sensex monthly and weekly charts show this entire rally from May 2003 to be zigzag that has three legs (a), (b) and (c). Wave (c) has subdivided into five parts labelled 1, 2, 3, 4 and 5. We are probably in the last part ie wave 5 of wave (c). Since waves 2 and 4 are overlapping, wave (c) has to be interpreted as a terminal impulse pattern within which wave 5 will be the longest wave.

According to Neowave theory, this wave 5 will usually cover 100 per cent to 161.8 per cent of the price action of waves 1 and 3 combined. On a logarithmic scale this calculation sets a target of 20,000-plus for the Sensex. And that could happen in the year 2007 itself.

The most optimistic forecasts by many analysts, for the year 2007, are not exceeding 16000. But that is what Neowave theory is all about. The predictions are based on certain rules and not on my personal desire.

Of course, the future course of the markets would resolve the validity of my pattern interpretation. But if it is right, then there is a great buying opportunity even today.

Many stocks in the small and mid-cap segments seem to be in a huge accumulation phase and are likely to give an upward break-out. Once such breakouts are confirmed one can buy these stocks on declines that follow the swift rallies and hold for at least 8-12 months.

Those who cannot overcome the general feeling of nervousness would miss a lifetime investment opportunity that year 2007 presents. My advice to small investors is to overcome this fear of heights and invest. They should take this opportunity; else the other wise men will take it away.

BE CONSERVATIVE

Mukul PalCEO, Or-phe-us Capitals

The Indian economic cycle is heading to the late expansion stage. Theoretically, there are five stages viz. early expansion, middle expansion, late expansion, early contraction and late contraction.

The very fact that we are heading to the late expansion stage suggests that we are still away from a top and 2007 might see a new high above Sensex 14,000 points before the real slowdown starts.

We at Or-phe-us still see the immediate preferred direction sideways to down with a potential upward break-out probably after the March 2007 quarter. We had highlighted broad market divergence in November 2006, which still stand firm.

Historically, such divergences do not guarantee that markets may turn down or remain sideways, but if you look at it from the inter-market perspectives and add in a few technical aspects, we have enough reasons to validate our case.

The capital goods sector has exhibited a clear leadership since 2004 with average returns over the last three years near 80 per cent. This was the only sector to churn up more than 100 per cent ever in a year.

Capital goods, representing the industrial sector growth, marks the best run of the economic cycle. Materials and energy sector should assume leadership from current levels. And the effects should be visible starting this month.

Materials and energy: Though we are still negative on zinc and other base metals on the intermediate term, the materials sector (chemicals, construction materials, glass, paper, forest products, metals) is a mixed bag, and steel and aluminium still seem to have upside left. Integrated aluminium companies are still trended up.

On the energy front, we do not see oil falling substantially below $50. After oil hits a base, the respective sectors should assume leadership. Till then we can see some negativity in both the energy and materials sector. Energy is also a late expansion sector and seems in sync with our preferred wave count on market.

BSE Bankex was the next best performing index after capital goods sector. Credit expansion is the highest in late expansion stage.

This boosts banking profitability on one side and makes banking sector very vulnerable to corrections. We are near our price targets on the sector and sector components and recommend pre-Budget reductions on the sector.

Technology: Despite the noise that Indian tech companies generate abroad, the sector has under-performed every other sector in 2006. This under-performance should continue.

Technology is in a middle expansion sector and does not do well in late expansion sectors (current). We still believe the technology sector prices should correct sizeably from current levels. We will not be surprised if technology gives negative returns in 2007.

The automobile sector should see negative surprises. The index and its constituent stocks should decline further from here. This push and pull of various sectors should result in sideways to net negative movement till the first quarter of 2007.

Banks and technology alone cannot sustain the markets at current levels. And with the capital goods story being more than three years old, we need smart sector allocations as we head into late expansion. Energy and materials should start ticking from this quarter. Let's be conservative in 2007.

CORRECTION AFTER THE MARCH QUARTER

Devangshu DattaTechnical Analyst

Since April 2003, the Nifty has climbed some 324 per cent. Despite several corrections, and the sheer unlikely length of the bull run, the upwards trend has got even steeper since April 2005.

By definition, any long-term bull run should lead to new record highs. But the Indian market has never before seen a rally of this length or recorded this type of sequence of successive highs for months on end. By definition, there's been a paradigm shift in the market--this mirrors a broader situation where GDP growth has been excellent for a four-year period.

Can this bull market last through 2007 or is it time for a big correction? Well, since May 2005, the Nifty has risen along a steep 50 degree trendline (monthly charts). Volumes have been good and other breadth signals have not been particularly negative. At first glance, there's no reason why the bull run cannot continue indefinitely.

There are some signs of a possible market top. Despite generating good volumes, the Nifty hasn't been able to break decisively past the 4000-point level. There's a very strong resistance above 4000.

Momentum signals such as the RoC have been weak for several months now–that's a negative divergence. Intra-day volatility has also been low--this is usually a sign of a nearing top. Advances have frequently been outnumbered by declines--another warning signal.

Nevertheless, one of the oldest rules of technical analysis is not to bet against an existing trend until and unless the price line confirms indicator divergences.

It's perfectly possible for a price line to continue rising even if there are negative divergences. We cannot trade in the hope of a correction until such time as the price line reacts and confirms divergence.

I do think that a major correction sometime in 2007 is extremely likely. We may see a repeat of the situation that occurred in May-July 2006. The market dropped by 30 per cent before it made a recovery. If such a deep correction occurs, it will have one of the following potential fundamental triggers:

Interest rates are getting tighter – that automatically makes a correction more likely. Another rate hike in the next RBI review could trigger a sell-off.

The Budget could fail to satisfy the market which is, as usual, making miraculously optimistic consensus estimates about reform possibilities.

There may be some global event that adversely impacts all stock markets and leads to an FII pull-out. (The foreigners have been strong buyers in the first week of 2007).

The current highly optimistic earnings estimates for 2006-07 and 2007-08 may not be met if there's even a minor dip in economic demand

In technical terms, there are three possibilities – the obvious one is that market will continue to run up.

This would involve breaking the Nifty 4000 resistance and continuing to ascend along the steep trend line that is being maintained (this is incidentally nearly coincident with the 10 month/200-day moving average on monthly and daily time frames respectively). We do have target projections in the range of 4150-4200 on the chart patterns and these could be exceeded if the market crosses 4000 with volume expansion.

The second possibility is that the 4000 resistance will hold. But the market will find support somewhere around 3600 and proceed to range-trade through most of 2007 between say, the range of 3600-4100.

The third possibility is a large collapse, which will drive the market down below the 3000 mark. Even then, the overall trend would be reckoned positive unless the lows of June 2006 (2600-levels) were broken. The market has successive support levels at 3750, 3600 and 3500 in case of serious corrections.

Short-term traders should watch the 10-DMA closely. The first danger signal of a short-term correction will be the piercing of this support line.

They should also watch for situations where the put-call ratio of open interest in the near-term Nifty drops below 1.1 or rises above 2. Below 1.1, it is very likely to signal an overbought market while ratios of above 2 are also very likely to be unsustainable. The third signal to watch for is a time-period where the domestic mutual funds and the FIIs simultaneously turn sellers.

My prognosis would be that volumes are very likely to expand until the Budget is announced. That in turn, means that the intermediate trend would stay positive until late February. If the Budget is acceptable, that would be great. I would expect a correction, and a deep one at that sometime in 2007. But it's not likely to occur until March and maybe even later.

WHERE TO INVEST AND WHEN?

Rajat K BoseTechnical Analyst

Are we headed for another year of stellar performance by the equity markets? But isn’t valuation a point of concern? What if interest rates spike further? If the global economy were to show some signs of cooling off then how would our market fare? These are some of the questions that keep haunting the minds of Indian investors now.

However, the moot question is where to put our money and when. Before we move in to specifics of sectors that look attractive, let’s put things in perspective so that we can come up with some low risk ideas.

This current bull run is already nearly four years old. Getting popular large-cap stocks at cheap valuations is a tall order. We should rather look forward to the broader universe of mid- and small-cap stocks and any sector that has so far been overlooked.

To answer the timing part, we need to take a cue from past instances. Since the early 1990s we have seen that except 1991 there hasn’t been a single year when the market moved up throughout the year.

Our market, as represented by the major indices, has gone up in the initial months of any year when the second half of the previous year has seen some sustained correction.

For the early months to show a good upswing, generally the market would have gone through a significant corrective swing in the last quarter or for most part of the second half of the previous year.

On the other hand, if the market showed a heady upswing lasting for several months starting any time between May and July we observe marked volatility and a protracted downswing during the first quarter of the very next year.

While our data, in this case, is limited to the last sixteen years beginning 1991, is not really a statistically significant population, it does throw some pointers. Going by this trend, we are likely to see a lot of volatility and a probable downward bias during the first three or four months of 2007. This seems highly probable given the meteoric rise of our market in the last six months or so, after the sharp downswing in the middle of 2006.

The scenario may not pan out only if the current surge of liquidity continues just as it has for last several months. However, it seems somewhat unlikely that the deluge of liquidity is going to continue if the allocations to India by some prominent global investors are any indication.

Thus, if the above scenario really gets repeated this time around, we might get better opportunities to invest a few months later.

One thing needs to be mentioned here, while the market participants may be obsessed with the Union Budget, it has not produced any lasting upswing except for 1991. Even the “pathbreaking” 1997 Budget saw market peaking out in less than a week’s time after its publication. Normally, Budget causes a lot of volatility rather than any sustained directional swings.

Any study done on the basis of the major indices of our market is likely to miss out some reality on the broader universe of stocks. While bull and bear swings in large-cap popular stocks continue to happen periodically with some cyclical regularity; the mid- and small-cap universe does not exactly replicate the same behaviour.

When the surge happens in them, in any particular year, they tend to show parabolic upswings only to taper off equally sharply ending in a stupor that may last for anything between two to four years.

For instance, the broad market upswing in mid- and small-caps came to an end in October 2005. This reality is corroborated by the large multitude of investors but may not be so apparent when you look at the so called mid- and small-cap indices.

Another feature of our current bull market is to take on fancy for different sectors and/or industries in different years. We initially saw a craze for retail stocks in 2003-04 while the next year it was the surge in commodities and capital goods stocks, which shifted to realty and construction last year. Expecting an encore would most likely lead to disappointments.

Thus, it makes sense to look at stocks belonging to sectors that have not been fancied like consumer durables, pharmaceuticals, paper, energy-related sectors (except power equipment manufacturers).

Most of the stocks belonging to these sectors are either at the bottom or have been range-bound for a considerably long length of time. Some of them are really good businesses with good earnings potential.

Some of these stocks are also showing accumulation signs over the last few months. These stocks could probably turn out to be low-risk decent-return bets for 2007. However, they may test your patience before they produce any good gains for you.

Infosys results had investors wondering whether this belwether would be able to turn sentiments. The results were in line with market expectations. The element of positive surprise was missing and that was the difference between this time and earlier. The appreciating rupee had taken out the bite out of a good set of numbers. Markets started in red and lost some ground in the early trading sessions but then got ranged. Investors then got into a buyng mode and buying was seen in Software, Engineering, Banking and Automobile stocks. Market further ventured in the positive territory as buying intensified in the final trading hours and the market ended in Green near the high point of the day. There was not much action seen in mid caps as Buying was mainly concentrated in Index heavy weights. On the Global front, Asian indices ended their day in Red while the European indices are trading are trading mixed. Bank of England surprised by raising rates affecting sentiment though all negatives were overcome in a general positive atmosphere.

Infosys Technologies reported net profits at Rs 983 crore (Rs 9.83 billion) in the third quarter, up 5.81% versus Rs 929 crore (Rs 9.29 billion) in the previous quarter. The company's revenues were up 5.91% at Rs 3655 crore (Rs 36.55 billion) versus Rs 3451 crore (Rs 34.51 billion) QoQ. It reported other income at Rs 59 crore (Rs 590 million) in the third quarter compared to Rs 66 crore (Rs 660 million) in the previous quarter. Certainly good numbers.. more importantly the guidance remains positive and the company expects to post an EPS of about Rs66 for the year which puts valuations at 32 times earnings for FY07 and about 26 times FY08. Seem fair !

FIIs continue to be sellers. They were sellers of over Rs 1000 crores yesterday and the provisional figures for today have come negative. Thats certainly not encouraging and investors will worry whether the buying will come in or not and keep a cautious stance. Mutual Funds also have been sellers of late ahead of the 3Q numbers.

The company reported net profit at Rs 295 crore (Rs 2.95 billion) in the third quarter versus 224.4 crore (Rs 2.24 billion) in the same quarter of last year. Its net interest income was up 38.4% at Rs 928 crore (Rs 9.28 billion) from Rs 670.6 crore (Rs 6.70 billion) YoY. The company's other income (non-interest revenue) increased by 26.1% to Rs 373.3 crore (Rs 3.73 billion) in the third quarter from Rs 296.1 crore (Rs 2.96 billion) in the corresponding quarter of the previous year. The net interest margin stood at 4%. For the nine months ended December 31, 2006, the bank earned total income of Rs 6021.1 crore (rs 60.21 billion) against Rs 3916.7 crore (Rs 39.16 billion)in the corresponding period of the last year. HDFC Bank posted net profit at Rs 797.9 crore for the nine months ended December 31, 2006, up 31.3% over the same period of last year. Stock ended the day up by 0.76%.

Maruti Udyog Ltd is set to launch a new diesel Swift at an aggressive price of Rs 4.5 lakh. The would be the first major foray of Maruti in the diesel car segment, Swift D will be powered by a 1.3 litre Fiat multijet engine, manufactured at the company's factory at Manesar in Haryana. The Swift D will come at a higher price than the current petrol models' the Swift LXi is available at Rs 3.99 lakh. Diesel vehicles currently account for 30 per cent of the 1.2 million sold in India, the share is expected to climb to 45 per cent of the projected 2 million market by 2010. Diesel prices are much lower than Petrol prices and thats the reason for the attractiveness. Stock ended the day higher by 3% helped more by sentiment rather than this news. Competition is only increasing.

Investor confidence in emerging markets have taken a beating which saw the sustained selling in the last two days. Thailand first put in the foreign exchange curbs last month which caused a major flutter. Thailand partially eased those rules as investors voted with their feet. Venezuela brought in a similar experience after the President pledged to Nationalise industries. Venezuelan President Hugo Chavez this week pledged to nationalize industries from energy to telecommunications. Venezuela's stock index plunged 19 percent yesterday, its largest decline on record. The head of the National Assembly Finance Committee later pacified that the telecommunications, oil and power companies subject to a nationalization plan will be compensated which helped the Index up 5.8 percent on that though the worries about the amount of compensation still remain. FIIs have been sellers across as they tend to group emerging markets together and selloff in one markets leads to profit taking in the others. India falls in the category too. Such events dont bring in comfort.

Also the worry on Japan interest rates continues. Comments by Bank of Japan chief economist Hideo Hayakawa that the consumption component of gross domestic product (GDP) was likely to have rebounded sharply in October-December after a contraction in the preceding quarter gave markets the cue that BOJ may be prepared to raise the overnight call rate by 25 basis points to 0.5 percent as early as next week, which would take the rate to its highest since 1995. BOJ has its meeting set for Jan. 17-18 meeting. Japan increasing interest rates is certainly not good for global equities.

Technically Speaking: It was a good pull back rally and momentum is in favour of the upward move for now. Volumes were pretty good at Rs.4414 cr. Advances outnumbered the Declines as there were 1740 advances against 897 declines. Sensex touched an intra day high of 13667 and low of 13303. Resistance level was at 13783-13907 and the support at 13418-13178 levels.

The domestic demand-driven story is likely to continue, as is evident from the growth in the Sensex' earnings led by cement, capital goods, automobile and fast moving consumer goods (FMCG) companies.

The Indian pharmaceutical sector is expected to report strong earnings growth for Q3FY2007, driven by continued domestic growth, steady contributions from exports and synergies arising out of integration of acquisitions.

The performance of the front-line information technology (IT) companies is expected to be affected in Q3FY2007 by the dual impact of a lower number of working days and a steep appreciation in the rupee. Based on our Q3FY2007 estimates, the implied earnings growth in Q4FY2007 for Tata Consultancy Services, HCL Technologies and Wipro are 1.1%, 1.6% and 0.2% respectively. This leaves sufficient room for an earnings upgrade. We would make the required changes in the result updates of the respective companies.

We expect the earnings of the Sensex companies to grow by a strong 27% year on year (yoy) led by a strong growth in the above-mentioned sectors on the back of a lower base in Q3FY2006 influenced mainly by the numbers of Reliance Industries Ltd (RIL).

Low growth or decline in profits is expected from ONGC, Reliance Energy, Hero Honda and NTPC.

The implied year-on-year (y-o-y) estimated growth in the profit after tax (PAT) for Q4FY2007 works out to 60%. That is due mainly to the high earnings expected in the last quarter from the financial sector, especially the State Bank of India (SBI) whose Q4FY2006 earnings were comparatively lower. Major upgrades are not expected in the FY2007 earnings in most sectors barring FMCG, which shows a low implied growth rate.

After crashing by 652 points in the last five sessions, the market witnessed a strong relief rally on across-the-board buying through the day. The strong optimism in key indices triggered a steep rally and the FMCG index managed to register gains of 3.25%. The Sensex opened on a weak note with a negative gap of 31 points at 13331, but quickly recovered and remained upbeat through the session on sustained buying support. The rally gathered steam towards the close and the Sensex touched an intra-day high of 13668 before ending the session at 13631, up 269 points. The Nifty also bounced back sharply and advanced 92 points to close at 3942.

The breadth of the market was positive. Of the 2,702 stocks traded on the BSE, 1,759 stocks advanced, 886 stocks declined and 51 stocks ended unchanged. All the sectoral indices closed with significant gains. The BSE FMCG index was the major gainer and soared 3.25% followed by the BSE CD index (up 2.67%), the BSE IT index (up 2.05%), the BSE PSU index (up 2.02%) and the BSE Teck index (up 2.50%).

Among the 30 Sensex stocks 28 ended in the green. Attracting strong buying support Wipro surged 5.18% at Rs621, Reliance Communication soared 4.83% at Rs427, HLL jumped 4.53% at Rs218, Bharti advanced 3.91% at Rs637, TCS added 3.49% at Rs1,277, Satyam Computers zoomed 3.43% at Rs480, ITC gained 3.40% at Rs169, NTPC vaulted 3.39% at Rs137, ACC was up 2.95% at Rs1,050 and Maruti Udyog closed stronger by 2.86% at Rs906. Other front-line stocks also moved up by 1-2% each.

Infosys was the most actively traded counter on the BSE and registered a turnover of Rs225 crore followed by Reliance Communication (Rs141 crore), RIL (Rs92 crore), Satyam (Rs79 crore) and SBI (Rs68 crore).

The market finally ended its losing streak of the past 5 trading sessions. The rebound was strong.

The Sensex, which witnessed a shaky start for the day’s trading session, caught steam as the day progressed and it surged over 300-points in late session to strike an intra-day high of 13667.80. Infosys which was down earlier during the day recovered in mid-afternoon trade.

The 30-share BSE Sensex spurted 268.55 points (2.01%) to 13,630.71. It opened on a weak note at 13331.38 and went on to touch a low of 13303.22, as selling continued. But from here the Sensex recovered consistently as buying support emerged.

The S&P CNX Nifty jumped 91.95 points (2.39%) to 3942.25

The total turnover on BSE amounted to Rs 4414 crore, as compared to Rs 4131 crore on Wednesday.

Among the Sensex pack, 28 advanced while the rest declined.

Reliance Communications was the top gainer, up 5.91% to Rs 431.30 on 33.99 lakh shares. The company’s board approved an FCCB issue up to $ 1 billion in one or more tranches. The company has also reaffirmed its interest to buy Hutch Essar. The stock recovered sharply from a low of Rs 404.10

Frontline IT stocks witnessed portfolio churning after IT bellwether Infosys unveiled its December quarterly results. The BSE IT index gained 2.05% or 104.88 points to 5230.98

Wipro jumped 5.32% to Rs 622 on 3.99 lakh shares. It has staged a smart recovery from a low of Rs 580. It surged to a high of Rs 623.40, in fag hours of trade.

Satyam Computers gained 3.17% to Rs 479.05 on 16.74 lakh shares. It recovered sharply from a low of Rs 454 to hit a high of Rs 486.90.

TCS surged 3.40% to Rs 1276 after slipping to a low of Rs 1205. It advanced to a high of Rs 1297.90. Analysts are now betting on this frontline IT companies, and are expecting them to announce better than expected results.

Infosys, which had plunged to a low of Rs 2100 in early trade bounced back smartly, and settled 0.30% higher at Rs 2175 on 10.47 lakh shares. It surged to a high of Rs 2214. The company reported a 5.8% sequential growth in consolidated Q3 net profit at Rs 983 crore that met market expectations. The stock came off lower level after it had lost as much as 3.1% to a low of Rs 2100 at the onset of the trading session.

Infosys’ consolidated revenue has risen 5.9% to Rs 3655 crore from Rs 3451 crore Q2 September 2006. Revenue growth too was within market expectations. Infosys’ core operating profit margin was at 32.7% in Q3 December 2006 compared to 32.1% in Q2 September 2006.

Infosys has forecast an EPS of Rs 17.88 for Q4 March 2007, year on year growth of 46.3%. It has forecast income in the range of Rs 3789 crore to Rs 3798 crore for Q4 March 2007, year on year growth of 44.4% to 44.7%. For the full year FY 2007, Infosys has forecast EPS of Rs 66.63, year on year growth of 48%. This is higher than its earlier guidance of an EPS of Rs 66 for the year. The company has forecast income at between Rs 13910 crore to Rs 13919 corre for FY 2007, a growth of 46.1% – 46.2%. This is higher than what the company had forecast at the time of announcing Q2 results. At that time, the company had forecast revenue at between Rs 13,853 crore and Rs 13,899 crore for FY 2007.

HDFC Bank recovered from an initial post-results fall, with the private sector banking reporting 31.7% growth in net profit for Q3 December 2006 that fell in line with market expectations. HDFC Bank has reported 31.7% growth in net profit for Q3 December 2006 at Rs 295.64 crore. The net profit was within market expectations. Net interest income has risen a 38.4% to Rs 928.63 crore (Rs 670.61 crore), beating market expectations. Other income has risen 26% to Rs 373.30 crore (Rs 296.13 crore).

Nestle India rose 3.45% to Rs 1247, but the stock pared gains after it had surged as much as 15% to a high of Rs 1387. The stock rose for the second day in a row today after the company said on Tuesday (9 January) its board would meet on 15 January to consider using a part of its general reserve and share premium account for distribution to its shareholders. Sections 391 to 394 deal with capital restructuring including mergers, amalgamations or demergers, anything, which alters capital structure of the company. Sections 100 to 102 deal with reduction of share capital.

Index heavyweight Reliance Industries (RIL) advanced 1.98% to Rs 1298.50 on 7.19 lakh shares. The Indian oil sector regulator will decide within 15 days whether to approve the viability of Reliance Industries (RIL)’s plan to develop an oil find in a block off the east coast. Such approval is necessary as the government's share in the oil find -- either in profit or output -- is linked to the time and investment needed for development of a block.

HDFC (down 0.44% to Rs 1520) and Grasim (down 0.07% to Rs 2784) were the losers.

Shares of state-run oil marketing companies gained after US crude oil futures fell below $53 on Thursday for the first time since June 2005 after exceptionally warm temperatures in the US Northeast hit winter fuel demand. Indian Oil Corporation (up 2.42% to Rs 457.35), HPCL (up 2.45% to Rs 291), and BPCL (up 2.55% to Rs 354) gained.

IFCI jumped 29.18% to Rs 20.76 extending Wednesday rally, after it along with other shareholders, sold part of their holdings in the National Stock Exchange to NYSE Group and other foreign investors on Wednesday. Volumes in the scrip were a huge 12.88 crore shares on BSE. The news of NSE stake sale had lifted the scrip by a whopping 19% on Wednesday 10 January 2007, on huge volume of 4.7 crore shares.

IDBI jumped 11% to Rs 86.45, taking cue from rally in shares of IFCI. IDBI holds 11.7% stake in IFCI. Based of the current market price of IFCI shares, IDBI’s 11.7% stake in IFCI is worth about Rs 150 crore. Based of the current market price of IFCI shares, IDBI’s 11.7% stake in IFCI is worth about Rs 150 crore.

Polaris Software jumped 10% to Rs 210.50, extending its recent rally on expectations of strong December 2006 quarter results. Polaris has a strong order book. The company has transformed itself from being a pure software services provider to a hybrid model focussed on product-cum-services catering to the banking, financial services and insurance (BFSI) industry.

Jet Airways spurted 8% to Rs 680.35. Jet Airways said on Tuesday, 9 January 2006 it would expand international operations with new flights to Bangkok in late-January and flights to the United States late this year. The company said it plans to launch a regular US service in August, flying to Newark, New Jersey, and to San Francisco via Shanghai in October. The airline also said it planned to expand its current fleet to 89 aircraft by March 2009 from the present 60. Of its current 60 aircraft, 46 are Boeing 737s

Panacea Biotech gained 1.33% to Rs 384 on high total volumes of 11.10 lakh shares of which 10.70 lakh shares came through a block deal struck at Rs 390 per share in opening trade.

Prime Focus surged 13.37% to Rs 417.50 on reports that it was in talks to buy Spirit DI, the post-production arm of Hyderabad-based Suresh Productions.

Everest Kanto Cylinder (EKC) advanced 3.88% to Rs 762.60. Earlier this week, it had secured an order worth Rs 40 crore from defense authorities for supply of specialized gas cylinders. The company's order book for the manufacture of CNG and industrial gas cylinders is booked for the next 12 months, according to EKC.

PBA Infrastructure rose 3.55% to Rs 134 after it got a contract worth Rs 60.30 crore from National Highways Authority of India for toll collection on National Highway 4

Asian markets were trading on a mixed note. The Nikkei share average edged down on Thursday as gains from Tokyo Electron on higher orders for its chip-making gear were offset by falls in market heavyweights such as Fast Retailing Co. Ltd. The Nikkei share average was down 0.62% on Thursday to 16,838.17 while the Hang Seng index also slipped lower by 0.94% to 19,385.37

As per provisional data, FIIs were net sellers to the tune of Rs 797 crore on Wednesday 10 January, the day when Sensex had lost 204 points. They were net sellers to the tune of Rs 414 crore in index-based futures and Rs 235 crore in individual stock futures.

US stocks ended higher on Wednesday as a surge in Apple Inc.'s shares sparked a rally in the technology sector and Alcoa Inc.'s stronger-than-expected profit boosted optimism about company earnings. The Dow Jones industrial average was up 25.56 points, or 0.20%, to end at 12,442.16. The Standard & Poor's 500 Index was up 2.70 points, or 0.19%, at 1,414.81. The Nasdaq Composite Index was up 15.50 points, or 0.63%, at 2,459.33.

A great obstacle to happiness is the expectation of too great a happiness.

It's that day again when all categories of market players eagerly await the report card of Infosys. And, guess what the results are out. Nothing extra-ordinary this time. The bulls are sure to be disappointed and the market, especially the IT pack, will react accordingly. Though its not that bad this time around, the latest numbers are a lot softer than the growth registered in the past two quarters. Infosys has registered a modest 5.8% rise in its net profit for the third quarter at Rs9.83bn versus Rs9.29bn in the previous quarter. Revenues for the reporting quarter are up 5.9% sequentially at Rs36.55bn. The company has also come out with a meagre guidance for the full year.

The bulls, who were expecting Infosys to deliver higher than expected earnings will be a bit disappointed. As a result, the stock as well as IT shares will come under some pressure at the opening bell. The market, which has been weak of late, is also likely to remain so on the back of the subdued Infosys results.

Global cues though are not bad though. Markets in the US and Asia are up though marginally. Oil prices are quoting under $54 per barrel. The opening will be more or less flat to weak. The rest of the trading will depend on the tone of the Infosys management. The undertone anyways remains a little weak owing to lack of fresh buying from FIIs. They were net sellers of Rs7.97bn (provisional) in the cash segment yesterday. In the F&O segment, they offloaded securities worth Rs5.49bn.

The recent selling by the foreign funds doesn't auger well for the market, especially when one considers the stupendous gains of the last couple of years. This set of investors have a huge clout in the market and other investors tend to take their cues from them. Which partly explains the sell-off in the past few sessions after a good start to the new year. A lot is riding on India Inc. So, the results for the Oct-Dec quarter will be key though much of the strength in the Indian economy and corporate profits is already reflected in the stock prices. Companies, especially the large ones, will have to beat market estimates to set the tone for a fresh rally ahead of the budget. The advance tax numbers by the old economy companies have been pretty strong. However, one cannot rely too much on these numbers and will have to wait for the real story.

Other prominent companies announcing their results today include HDFC Bank, Mastek, Hindustan Zinc, Ucal Fuel, KSL & Industries, Jaiprakash Associates and Great Offshore. PBA Infrastructure might gain as the company has bagged a contract worth Rs603mn from the National Highways Authority of India. Moser Baer could be in the thick of things. The company's Home Entertainment division has launched over 101 Tamil titles in Chennai. Nestle India is expected to advance amid reports that the company will distribute extra cash to its shareholders. A Board meeting is scheduled on January 15 to consider the proposal.

Kalyani Steels, BF Utilities and Bharat Forge will be in action amid reports that the Baba Kalyani Group is considering a restructuring. Rama Pulp is likely to do well after a price hike. Titan Industries is another stock one could look at as long-term play. VSNL will attract some attention as the Government is slated to take up the issue of residual stake sale in a Cabinet meeting today. IFCI could continue to rise after selling its 7% stake for Rs7.8bn in the NSE to a group of investors led by NYSE Group.

Market Volumes:The turnover on NSE was down by 2.6% to Rs85.72bn. BSE Bank index was the major loser and lost 2.45%. BSE PSU index (down 2.44%), BSE Capital Good index (down 2.09%), BSE Oil & Gas index (down 1.28%) and BSE Technology index (down 1.16%) were among the other major losers.

The markets registered fifth straight day of losses with the key indices slipping over 1.5% each. Bears were in complete control as the markets slid following weak global cues. Banking, Technology and Pharma and Oil & Gas stocks led the fall with Bank index losing by 2.45%.The benchmark index fell below the 13400 as heavy weights like BHEL, Reliance Communication, SBI, Dr Reddy’s Lab, ONGC, ABB, Bharti Airtel and Infosys dragged the benchmark index to hit a low of 13336.52 in intra-day. Finally, the BSE benchmark Sensex fell below the 13400 level losing 204 points to close at 13362. NSE Nifty was down 61 points to close at 3850.

Shree Ashtavinayak has made an impressive debut on the bourses today, the scrip got listed at Rs189 and has rallied by over 28% to Rs202 touching an intra-day high of Rs204 and a low of Rs185 and has recorded volumes of over 16,00,000 shares on NSE. The company entered capital market with an initial public offering of 37,28,000 equity shares of Rs10 each and was subscribed by 6.04 times.

Deccan Chronicle spurred over 4.5% to Rs812 after the company announced that they would consider stock split plan on Jan 19. The scrip touched an intra-day high of Rs836 and a low of Rs756 and recorded volumes of over 1,00,000 shares on NSE.

Banking stocks led the down fall as index heavy weight SBI fell over 3.4% to Rs1134, ICICI Bank was down by 3.1% to Rs883, HDFC Bank dropped 1.7% to Rs996. Canara bank, OBC and PNB were the major loser among the Mid-Cap stocks.

Metal stocks fell as prices on LME slipped lower. National Aluminum fell over 3.5% to Rs200, SAIL declined by 2.5% to Rs82, Tisco was down by 0.7% to Rs452 and Sterlite Industries lost 1% to Rs520.

Oil exploration stocks lost ground. Heavy weight ONGC dropped 2.9% to Rs890 and Reliance Industries fell over 0.5% to Rs1273. The Oil refinery stocks also were on the receiving end IOC plunged over 4.55 to Rs446, HPCL was down 1.7% to Rs283 and BPCL edged lower by 0.25 to Rs345.

The market is likely to extend its losing streak as the sentiment remains bearish with a sharp bout of volatility expected during intra-day trades. The Nifty has a critical support at 3850 and below that level support is at 3820 or 3800. while the Sensex has a likely support at 13336 and resistance at 13570.

US indices on Wednesday registered gains with the Dow Jones closing firm above the level at 12442, up 26 points, while the Nasdaq moving up by 16 points to close at 2459.

Crude oil prices in the US market slipped on Friday, with the Nymex light crude oil for February delivery falling by $1.62 to close at $54.02 a barrel. In the commodity space, the Comex gold for February series lost $1.60 to settle at $613.40 a troy ounce.

The market may edge higher tracking recovery in Asian markets on Thursday after Wednesday’s fall. The Q3 results of IT bellwether Infosys and its Q4 March 2007 guidance will dictate the trend in key indices, Infosys being a heavyweight in both Sensex and Nifty.

Eight brokerages have predicated a between 4.1% to 7.3% sequential growth in Infosys’ Q3 consolidated net profit at between Rs 967.50 crore to Rs 996.70 crore compared to a net profit of Rs 929 crore in Q2 September 2006. These 8 brokerages expect a between 5.7% to 10.7% sequential growth in Infosys’ consolidated sales at between Rs 3646.60 crore and Rs 3819.20 crore, compared to net sales of Rs 3451 crore in Q2 September 2006.

The key factor to watch is the operating profit margin. Citigroup expects a marginal uptick in Infosys’ operating margins. It reckons that better pricing and lower selling, general & administration costs would offset margin pressure arising from appreciating rupee.

But recent substantial FII sales may weigh on the bourses. As per provisional data, FIIs were net sellers to the tune of Rs 797 crore on Wednesday 10 January, the day when Sensex had lost 204 points. They were net sellers to the tune of Rs 414 crore in index-based futures and Rs 235 crore in individual stock futures.

The market has fallen sharply from record highs last week due to FII sales. From a lifetime closing high of 14,014.92 on 3 January 2007, the Sensex has lost 652.76 points (4.6%) in the past five trading sessions. Nifty has lost 173.75 points (4.3%) during this same period. According to technical analysts, the next support level of Sensex is at 13,182 level. If that level is broken, the Sensex may slip to 12,800 they reckon.

Asian stocks were mixed on Thursday. Key benchmark indices in Japan, Singapore and South Korea were up by between 0.25% to 1.4%. Key benchmark indices in Hong Kong and Taiwan were marginally lower.

US stocks ended higher on Wednesday as a surge in Apple Inc.'s shares sparked a rally in the technology sector and Alcoa Inc.'s stronger-than-expected profit boosted optimism about company earnings. The Dow Jones industrial average was up 25.56 points, or 0.20 percent, to end at 12,442.16. The Standard & Poor's 500 Index was up 2.70 points, or 0.19 percent, at 1,414.81. The Nasdaq Composite Index was up 15.50 points, or 0.63 percent, at 2,459.33

The domestic demand-driven story is likely to continue, as is evident from the growth in the Sensex' earnings led by cement, capital goods, automobile and fast moving consumer goods (FMCG) companies.

The Indian pharmaceutical sector is expected to report strong earnings growth for Q3FY2007, driven by continued domestic growth, steady contributions from exports and synergies arising out of integration of acquisitions.

The performance of the front-line information technology (IT) companies is expected to be affected in Q3FY2007 by the dual impact of a lower number of working days and a steep appreciation in the rupee. Based on our Q3FY2007 estimates, the implied earnings growth in Q4FY2007 for Tata Consultancy Services, HCL Technologies and Wipro are 1.1%, 1.6% and 0.2% respectively. This leaves sufficient room for an earnings upgrade. We would make the required changes in the result updates of the respective companies.

We expect the earnings of the Sensex companies to grow by a strong 27% year on year (yoy) led by a strong growth in the above-mentioned sectors on the back of a lower base in Q3FY2006 influenced mainly by the numbers of Reliance Industries Ltd (RIL).

Low growth or decline in profits is expected from ONGC, Reliance Energy, Hero Honda and NTPC.

The implied year-on-year (y-o-y) estimated growth in the profit after tax (PAT) for Q4FY2007 works out to 60%. That is due mainly to the high earnings expected in the last quarter from the financial sector, especially the State Bank of India (SBI) whose Q4FY2006 earnings were comparatively lower. Major upgrades are not expected in the FY2007 earnings in most sectors barring FMCG, which shows a low implied growth rate.

Q3FY2007 capital goods earnings preview

Key points

High industrial activity coupled with the massive investments underway for capacity creation across sectors has been driving the demand for capital goods and other engineering products. As a result, the order books of engineering companies are bursting at the seams. During the quarter under review the order inflows for some companies like BHEL, Thermax etc will provide the key trigger for their performances.

In spite of the prices of copper being down in the current quarter, we expect the margins squeeze to continue. On the back of the robust order inflows, strong order booking and operating leverage being played out we expect the margins to recover in Q4FY2007.

We believe that theindustrial capital expenditure (capex) and the sustained investment in power generating units puts the players in this sector in a sweet spot. Thus, we remain bullish on capital goods companies like BHEL, Thermax, Genus Overseas and Indo Tech Transformers.